Private Sector Sets Water Sale To Californians

By JAMES STERNGOLD

Published: December 26, 2000

Correction Appended

CADIZ, Calif.—
In an agreement that would introduce a new level of market influence over the management of water in Southern California, the government agency that supplies roughly 17 million people in the Los Angeles area plans to buy large volumes of privately owned water for the first time.

The decision, which effectively relaxes the tight government controls that have always prevailed over this scarce and basic resource, comes after a shift in federal policy and projected shortages of water in the years ahead.

After years of planning and disputes, the Metropolitan Water District is within weeks of concluding its first contract to buy large volumes from one of the state's largest farming companies, Cadiz Inc.

Under the terms of the nearly concluded contract, officials on both sides say, Cadiz Inc. (pronounced KAY-deez) will provide the agency each year with as much as 47 trillion gallons (or in the industry measure, 145,000 acre-feet of water).

There have been many issues to overcome in this unusual deal -- already some environmentalists are threatening litigation -- but none are greater than the psychological hurdle of whether the private sector should be allowed to play such a large role in the management of this critical commodity.

About all the experts agree on is that the impact will be large, and that in time there are likely to be more private players and less government control.

''No question, this is introducing a whole new era,'' said Norris Hundley, a professor emeritus of history at the University of California at Los Angeles and author of ''The Great Thirst: Californians and Water, 1770's-1990's.'' ''The marketing of water is really new and will have a big impact. We're just seeing the tip of the iceberg of what's possible.''

The proposed deal comes at a time when Californians are already questioning the role of market forces in the delivery of basic resources. An unprecedented spike in power and natural gas prices, plus critical power shortages, have led many to wonder if the state's experiment in energy deregulation was such a wise move.

But even as some state officials call for more government controls on energy, Southern California's water planners feel they have no choice but to head down the road to a freer market to overcome what they describe as a sort of slow-motion supply crisis that will play out over the next two decades.

Federal government and court decisions have reduced how much water California will be able to take from the Colorado River. The Met, as the government agency is known, has changed only reluctantly, and had to take on a new general manager to carry out the new ideas, but it has now embraced the market-oriented approach.

''For years, the Met assumed the world would be a certain way,'' said Ronald Gastelum, the new manager. ''There was a certain arrogance. After the first court decisions, people were saying, 'Well, at least we have the Colorado River surpluses.' Then those got taken away. What we're now saying is: 'O.K., that's reality. Let's make the best business deal.' ''

Cadiz is offering that deal, and it has almost no competition because it is the only known source of such large volumes so close to the region. That fact heartens the British entrepreneur who runs the company, Keith Brackpool.

''The one thing I don't have to worry about when I wake up in the morning is that someone else has just solved California's water problem,'' Mr. Brackpool said. ''If you do the math, the price of our water just soars.''

The water would be pumped from an aquifer deep under the Mojave Desert at this sun-blasted old rail stop about 200 miles east of Los Angeles, where Cadiz operates a farm of scientifically managed, laser-straight rows of bushy lemon and orange trees and grapevines.

The math is particularly cheering for Cadiz, which has been losing substantial amounts of money every year. It lost $8.6 million on $115 million in revenues in 1999, and is expected to be in the red again this year. The deal with the Met could make a gold mine of this site.

Achieving that will require tough negotiations and political savvy, something Cadiz has worked hard at. Mr. Brackpool was a large contributor to Gov. Gray Davis's election campaign, and has been appointed by the governor to serve on several advisory boards related to natural resources and growth. In addition, the company named to its board last year Tony Coelho, formerly a powerful Democratic congressman and a former chairman of Vice President Al Gore's presidential campaign.

''I don't think anybody knows the value of that water, that's how valuable it is,'' said Mr. Coelho, whose district was the agricultural Central Valley of California. ''Let me just be blunt,'' he added. ''Careers are made and lost in water politics, and that will be true here.''

Los Angeles, which lies in an arid coastal region, has always had growth ambitions far exceeding its meager indigenous water supply. The city pipes its water in from the Owens Valley in Northern California. The rest of Los Angeles County and the surrounding counties rely on the Met, which transports federal allocations of Colorado River water through an aqueduct that cuts across the desert 35 miles south of here.

The law now grants California 4.4 million acre-feet of water a year, but it has been taking about 5.3 million acre-feet, much of that at the expense of Arizona and Nevada.

Correction: December 29, 2000, Friday Because of an editing error, an article on Tuesday about a plan by the Metropolitan Water District in Southern California to buy privately owned water misstated the amount it expects to buy from Cadiz Inc., a farming company. It is 47 billion gallons each year, not trillion.